Kiwi Slides to Month Low as China Bans Milk Powder; Aussie Drops
New Zealand’s dollar dropped to the lowest in almost a month against its U.S. counterpart after China banned imports of milk powder from Auckland-based Fonterra Cooperative Group Ltd.
The Australian dollar slid to the lowest in almost three years against the greenback after growth in the nation’s retail sales unexpectedly stalled, boosting odds for interest-rate cuts by the Reserve Bank, which meets on policy tomorrow. The yield on Australia’s one-year government note fell to a record low.
“Dairy exports are a big deal, and exports to China are a big deal for dairy exports,” said Imre Speizer, a markets strategist at Westpac Banking Corp. (WBC) in Auckland. “If China puts a ban on officially and it lasts for some significant period of time, you’ll probably see further negative reaction in the kiwi.”
New Zealand’s currency fell 0.6 percent to 77.90 U.S. cents as of 4:40 p.m. in Sydney, after touching 76.93, the lowest since July 8. It dropped 0.5 percent to NZ$1.1421 per Australian dollar, after reaching NZ$1.1588, the weakest since July 24. The Aussie lost 0.1 percent to 88.96 U.S. cents, after touching 88.48, the least since August 2010.
Australia’s one-year note yield fell as much as 17 basis points, or 0.17 percentage point, to a record 2.14 percent. The 10-year (GACGB10) yield slumped as much as 22 basis points to 3.57 percent, the least since June 19.
Fonterra, the world’s biggest dairy exporter, said Aug. 3 that three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause botulism. There have been no reports of any illness, the company said.
“We understand that China has suspended imports of all whey protein and milk-based powder sourced from Fonterra,” the Ministry for Primary Industries said in an e-mailed statement in Wellington yesterday. Russia has imposed a temporary ban on all New Zealand dairy goods, a ministry spokesman said on a conference call. Milk products account for about a quarter of New Zealand’s overseas shipments, which comprise about a third of the nation’s economic output.
“We sell NZ$13.5 billion ($10.5 billion) of dairy products around the world,” Trade Minister Tim Groser told Radio New Zealand. “Is all of this at risk? In some purely theoretical sense, yes.”
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates that is sensitive to expectations about central bank policy, fell 9 basis points to 3.3 percent.
Traders reduced bets to 16 percent that the Reserve Bank of New Zealand will lift interest rates from a record 2.5 percent by year-end, compared with 28 percent odds on Aug. 2, interest-rate swaps data compiled by Bloomberg show.
The swaps market is signaling certainty that the RBA will reduce its key rate by at least 25 basis points to a new all-time low 2.5 percent at its meeting tomorrow, with 2 percent odds for a 50 basis-point cut. All but one of the 27 economists surveyed by Bloomberg News predict the RBA will lower borrowing costs.
A report today showed Australia’s retail sales were flat in June from a month earlier, after rising a revised 0.2 percent in May. Economists in a Bloomberg poll forecast a 0.4 percent gain.
“Retail spending remains one of the weaker parts of the Australian economic story,” Michael Blythe, the chief economist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest lender, wrote in an e-mailed research note.
Australia’s dollar has dropped 13 percent in the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi dollar is the next biggest decliner, falling 6.9 percent.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar compared with those on a gain -- so-called net shorts -- was a record-high 72,573 on July 30, compared with shorts of 63,982 a week earlier.
“The market has fully priced an RBA cut tomorrow, and it’s expecting further cuts after that,” said Westpac’s Speizer. The Aussie “has got a little bit of room to price in some more easing, but not a lot.”
A rate reduction tomorrow would be the second this year and extend an easing cycle that began in November 2011, when the benchmark was lowered from 4.75 percent. The central bank is trying to stimulate growth in manufacturing, construction and retail, as a record mining-investment boom wanes.
The Australian economy will expand 2.5 percent this year, slowing from 3.6 percent growth in 2012, according to the median estimate of economists. Analysts in a separate poll predict the Australian dollar will end the year at 90 U.S. cents.
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